As Swedish pop group Abba once informed us: “Money, money, money, must be funny, in the rich man’s world. Money, money, money, always sunny, in the rich man’s world.”
The entertaining book “Dollars And Sense: How We Misthink Money and How to Spend Smarter” does not tell us all the things we could do if we had a little money. Instead, authors Dan Ariely, a professor of psychology and behavioral economics at Duke University in Durham, North Carolina, and Jeff Kreisler, a Princeton-educated lawyer-turned-comedian, shed light on common mistakes we make where money is concerned and why we make them.
This book delves into the complex forces at work behind the money matters that consume our time and control our lives, and reveals how they can improve our financial affairs.
“Why? Because our decisions about money are about more than just money,” the authors write. “The same forces that shape our reality in the domain of money also influence how we value the important things in the rest of our lives: how we spend our time, manage our career, embrace other people, develop relationships, make ourselves happy, and ultimately, how we understand the world around us.”
We all think we know what money is but perhaps do not fully understand the role it plays in our lives. Money has no value in itself but represents the value of the things we can obtain with it. The process seems simple: you decide what you want to buy, you pay for it and it is yours. However, most buyers do not take into consideration the opportunity costs: the alternative benefits that could have been enjoyed but were given up when making a decision.
Ariely recalls visiting to a car dealership and asking potential buyers what they would giving up if they bought a new vehicle. Few of them had an answer because most people are solely focused on what they want to buy.
“We almost always fail to fully appreciate alternatives. And, unfortunately, when we fail to consider these opportunity costs, the odds are that our decisions are not going to be in our best interests,” according to the authors.
Financial tools and services such as credits cards, mortgages, car-leasing agreements and students loans often cloud our understanding of the future effects of spending money.
We often forget that all things are relative. A striking example of this is the case of US department store JCPenney. In 2012, new CEO Ron Johnson ended the chain’s practice of deliberately inflating the initial price of its products, then marking them down so they appeared to be bargains – even though the reduced prices were actually the same as those offered by other retailers.
The new policy of setting this realistic, lower price to start with was fair and transparent – yet customers hated it. They felt cheated and betrayed and sales slumped. In one year, JCPenney lost $985million – and the CEO lost his job.
“Think about that: JCPenney’s customers voted with their wallets and they elected to be manipulated,” the authors write. “They wanted deals, bargains and sales even if it meant bringing back inflated regular prices, which is exactly what JCPenney eventually did.”
As another example of real versus relative value, we often do not mind paying more for a bottle of water on the beach while on holiday, mostly because psychologically we feel the extra cost is nothing compared with the overall cost of the vacation.
How does all this relate to our desire to avoid the pain of paying? This, the authors explain, is the pain we feel not when we spend money, but when we think about spending it. The more we think about it, the more painful it feels. If we consume a product while thinking this way, the pain of paying can deeply affect the entire experience, making it less enjoyable.
There are ways to avoid the pain of paying. One is to pay in advance. Then there is no worrying about our enjoyment being spoiled by paying at the time of consumption. However, advance payment is less economical since the money is gone and no longer accumulating interest.
Paying after consumption hurts less, which is one of the main reasons why credit cards are so popular. They take advantage of our desire to avoid the pain of paying – we are less likely to remember the amount we spend if we pay with a credit card instead of cash.
“Credit cards are like memory erasers from a science fiction movie, but they live in our wallets” write the authors, who point out that studies have found people are more willing to pay when they use credit cards and tend to make bigger purchases.
“In other words, credit cards and even just the suggestion of credit cards, influence us to spend more, more quickly, more carelessly, and more forgetfully than we would otherwise,” they write. “In some ways, they are like a drug that blurs our ability to process information and act rationally…Their effect is deep and worrisome.”
Another common mistake many of us make is that we overvalue the things we own. The true value is a function of the utility and opportunity costs. Throughout their book, Ariely and Kreisler show how we all make many financial decisions but often do not take the time to think them through. When we do not know the true value of something, we are particularly susceptible to suggestion and misleading information, and so make the wrong decisions.
The responsibility, therefore, lies with each of us to become aware of our ignorance and limitations, and to improve our money habits so that we save and spend smarter, allowing us to live better lives.
Book Review: Cash in on a smarter way to think about money
Book Review: Cash in on a smarter way to think about money
What We Are Reading Today: ‘Chinese Espresso’ by Grazia Ting Deng
Italians regard espresso as a quintessentially Italian cultural product—so much so that Italy has applied to add Italian espresso to UNESCO’s official list of intangible heritages of humanity. In this book, Grazia Ting Deng explores the paradox of “Chinese Espresso”— the fact that this most distinctive Italian social and cultural tradition is being preserved by Chinese immigrants and their racially diverse clientele.
What We Are Reading Today: ‘Bartleby and Me’
Writers love to write about writing and none seemingly more so than Gay Talese, the journalist known as a pioneer of the American literary moment called “New Journalism.” This style of writing originated in the 1960s and ‘70s and combines journalistic research with creative non-fiction.
Talese started his career as an obituary writer at the New York Times and, later, as a magazine writer who ended up reluctantly penning the most widely read magazine articles of all time. He showcases some of that editorial wisdom — and reporting mishaps — in his 2023 book, “Bartley and Me: Reflections of an Old Scrivener.”
Now 92 years old, he writes vividly about his early reporting days and the stories behind the stories; he masterfully weaves in stray strands that somehow come together into a coherent narrative. Talese writes crisp copy. He writes about nobodies and somebodies with equal fervor.
He recalls his time as a young reporter on assignment where, at the insistence of his persistent editor, he attempted to sit down for an interview with the elusive and super-famous star Frank Sinatra. Talese recounts how he repeatedly tried — and failed — to pin down “Ol’ Blue Eyes” while chasing him around California in the 1960s. He eventually published his distinctively titled profile, “Frank Sinatra Has a Cold,” in the April 1966 issue of Esquire. That piece of writing is considered one of the most celebrated pieces of magazine journalism to date.
Talese’s tales are mostly centered around his time in New York. He recalls things in meticulous detail — for example, pointing out the exact address and precise building within a neighborhood to help the reader visualize the space. The city is always a leading part of the story.
“New York is a city of things unnoticed,” he wrote 60 years ago, something that could easily be written today. He recalls the early days of his journalistic career in New York, churning out newspaper copy and still, now, being ever-so-curious about everything. The pages of this book show that we all, alongside him, still have much more to notice.
The title of the book was inspired by American author Herman Melville’s short story, “Bartleby, the Scrivener: A Story of Wall Street,” published in the 1800s. This is a social criticism piece about a lawyer who hires a peculiar scrivener or clerk, Bartleby, and the adventures (or misadventures) that ensue.
In his version, Talese shares with us a fresh piece of original reporting titled “Dr. Bartha’s Brownstone,” which is his version of “Bartleby.” This time, however, Bartleby is an unknown doctor who makes his bombastic mark on the city one random summer day. It is a brilliant piece of journalism about journalism.
What We Are Reading Today: ‘The Proof Stage’ by Stephen Abbott
The discovery of alternate geometries, paradoxes of the infinite, incompleteness, and chaos theory revealed that, despite its reputation for certainty, mathematical truth is not immutable, perfect, or even perfectible.
Beginning in the last century, a handful of adventurous playwrights took inspiration from the fractures of modern mathematics to expand their own artistic boundaries.
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The most celebrated Andean artwork in the world is a 500-year-old Inca tunic made famous through theories about the meanings of its intricate designs, including attempts to read them as a long-lost writing system.
But very little is really known about it. “The Royal Inca Tunic” reconstructs the history of this enigmatic object, presenting significant new findings about its manufacture and symbolism in Inca visual culture.
What We Are Reading Today: ‘The Evolution of Power’ by Geerat Vermeij
Power has many dimensions, from individual attributes such as strength and speed to the collective advantages of groups.
“The Evolution of Power” takes readers on a breathtaking journey across history and the natural world, revealing how the concept of power unifies a vast range of phenomena in the evolution of life—and how natural selection has placed humanity and the planet itself on a trajectory of ever-increasing power.
